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M&A in China's IC industry to accelerate

2014-07-23 GMT+8:00

BEIJING, July 21 (Xinhua) – China's IT and communications service provider Unisplendour Corp. (UNIS) has recently incorporated NASDAQ-listed chip designer RDA Microelectronics (RDA, RDA.NASDAQ). And the move signals accelerating merger and acquisition (M&A) withinChina's integrated circuit (IC) industry and will make the industry more concentrated.

-- RDA, Spreadtrum integration to benefit IC manufacturing

UNIS and RDA jointly announced on July 19 that the former had acquired the latter for 906 million US dollars. RDA is one ofChina's top three chip designers.

The market held that after the acquisition, the relationship between RDA and Spreadtrum Communications Inc. (Spreadtrum), another leading Chinese IC designer, was transformed from competition to synergy, as the latter was incorporated by UNIS in 2013. If the integration between RDA and Spreadtrum goes well, the international competitiveness ofChina's IC industry will be improved significantly.

Industry experts believed that the integration between RDA and Spreadtrum would facilitate the reform ofChina's IC industry, boost its development, and forceChina's IC industry, even the mobile phone industry, to integrate.

UNIS will be the biggest beneficiary in terms of financial benefits and brand image, and a chip company with market value exceeding 100 billion yuan is to establish in the Chinese mainland market.

Meanwhile, the M&A will benefit high-quality Chinese-concept shares listed on overseas market, while the first-class upstream suppliers of RDA and Spreadtrum will benefit from the integration.

Gu Wenjun, an analyst with iSuppli on the semiconductor sector, said the integration between RDA and Spreadtrum needs cooperation and experiences from both sides, and if UNIS and Spreadtrum find out a way suitable for the integration of Chinese high-tech industry, it will be of great meaning for Chinese companies to merge and acquire overseas semiconductor counterparts and for improving Chinese companies' M&A capacity.

-- M&A among IC design companies necessary for industry

China's State Council, or the cabinet, issued guidelines on boosting the development of the IC industry later in June, targeting to boost the sales income of the IC industry to more than 350 billion yuan by 2015, up about 100 billion yuan from 250.8 billion yuan in 2013.

The guidelines also stressed the setting up of a long-effect mechanism to ensure healthy development of the IC industry.

According to Wei Shaojun, vice president of China Semiconductor Industry Association, said one of the measures for setting up a long-effect mechanism was to form a crop of big companies through M&A.

Wei said the IC design sector was especially lack of big enterprises. Currently, sales incomes of Chinese mainland's top 10 IC design companies only account for a bit more than 30 percent of the sector's total, while the proportion inTaiwanand theUSare 70 percent and 90 percent, respectively.

In comparison with foreign counterparts, Chinese IC designers are usually small. Statistics show that the sales incomes of Chinese mainland's top 10 IC design companies were 22.6 billion yuan in 2012, while the business revenue of US-based Qualcomm Inc., the largest wireless technology service provider in the world, was 13.18 billion US dollars.

Moreover, most ofChina's IC design companies are under the control of the first-generation entrepreneurs, and the development of those companies have come to a standstill. Therefore, M&A in the IC design sector is necessary for its further development.

Gu believed that Chinese companies need to make progress on the basis of cooperation because of their small sizes, and it is crucial to solve the conflicts of interest among the companies to ensure virtuous development of the industry. (Edited by Luo Jingjing,